“I’M NOT GIVING MY HOUSE AWAY!”

This is another one of those phrases that Realtors hear all the time. It is, quite frankly, a very natural thing to feel and say. You paid good, hard-earned money for your home. You’ve put additional money (and sweat equity) into the house. You’ve lived it in for a period of time and your neighbor who bought at about the same time as you got 120% more than he paid when he sold about 2 years ago.

So why should you give it away? You shouldn’t!

What you have to do is to clearly define what “giving it away” means to you. It’s very subjective.

Ask yourself the following questions:

1. Why do you want to sell in the first place?
2. What will you do if you don’t sell?

There are a dozen reasons why people want to sell their homes. Answer it honestly. Perhaps selling isn’t really that important to you. If it is, then move on to the second question – what will you do if you don’t sell? There are only 3 possible answers.

1. You’ll stay in your home
2. You’ll rent your home to someone
3. You’ll move and leave the house vacant

The most common answer is that you’ll stay in your home. If that is your answer then ask the following question – HOW LONG will you stay before your original reason for moving becomes urgent?

If you think you will stay in your house for “a while – until the market turns and houses appreciate again” you should sit down and do some math. Here’s an example which is, admittedly based on theory – no one really knows what is going to happen in the market. We’re going to start with the hypothetical assumption that the market will continue to depreciate for another 9 months, level off for 6 months and then begin to appreciate again.

Soooo…. using my favorite $100 house, let’s look at a couple of scenarios. First where you overprice the home and then at what happens if you try to wait it out.

SCENARIO #1. You paid $90 for your home four years ago. Your neighbor who has a similar house also paid $90 four years ago. He sold his home two years ago for $110.

Your Realtor tells you that a good selling price for your house is between $98 and $102. He suggests listing it for $100.

You know that you’ll probably have to negotiate a little and sell for $97 or so. You will then have to pay a real estate fee of about $6 so you’ll end up netting $92 which is only $2 more than you paid. You feel that that is just “not enough” and constitutes “giving your house away” and you are not going to do that.

You insist on listing it for $108, and will negotiate down to $105 if you have to. After taking out a fee of $6 you will net about $99 which is, in your opinion, “good enough” after all, it’s WAYYYY LESS than your neighbor got. You are being very flexible without giving it away.

What happens next is that your house doesn’t sell quickly. The educated buyers who have been looking at houses for a few months, take a look at your house and they know that, while it might be a great house, there are others out there that are better values. 90 days go by. You then, reluctantly tell you Realtor that you’ll lower the price to $102 – which is the top range of what he originally suggested. Here’s the catch. Based on a continued depreciation your house is no longer valued at $100. It is now valued at about $98. A new group of educated buyers (the other ones have already bought homes), visit your house and reject it. There are some other similar houses that are selling for $96 and $97. Your house sits for another 90 days – and the cycle continues.

Eventually the market does bottom out. Your house is now worth about $92 or $93. You decide that you simply can’t sell at that price and you pull your house off the market.

Scenario #2. You hear your Realtor’s original price suggestion of $100 and decide to wait it out. You do nothing for 6 months. The market has now bottomed out and your house is now valued at about $92 or $93. You feel that things are on track and you’ll just wait for things to rise again.

————-

You can see in both scenarios you are sitting there 6 months later with a home that is worth about 7 or 8% less than you could have sold it for when you started the process. So now you are going to wait for the market to rise again.

Now, to reiterate that this is all hypothetical. The market begins to slowly appreciate and 12 more months go by and your house appreciated in value by about 5%. This now makes your home worth about $97. You are 18 months from when you started.

So – now go back to those two questions. Why do you want to move and what will you do if you don’t sell? This, of course, leads again to the third question – how long can you actually wait before you move.

No one really knows when the market will turn and how quickly it will appreciate when it does. In the best of scenarios, however, you need to understand that in all probability, your house is worth more today than it will be in 6 months to a year- and that it could 1, 2, 3 or more years until it is worth more than it is today.

NOTE: I’ve had a few of my colleagues tell me that the last section of this post is a little harsh. I’ve never been one to try and soften the truth. I’ve seen people absolutely miserable about having their homes sit and sit and sit on the market for 6, 9, 12 months or longer. There’s no reason for that to happen if you take the selling process seriously and analyze the market strictly from a business point of view. Selling a home is an emotional experience but you have to somehow put that part on hold and make your decisions from a purely intellectual position.

BOTTOM LINE:

1. Overpricing your home will NOT help you get more money from the sale.
2. Overpricing will probably stop your home from selling and you will end up selling for less.
3. Holding off until the market turns will not help you sell for more unless you can wait a very long time – most likely years.
4. What you WANT for your house is irrelevant to the current value of your house.
5. What you NEED for your house is irrelevant to the current value of your house.
6. What you PAID for your house is irrelevant to the current value of your house.
7. What you OWE on your house is irrelevant to the current value of your house.
8. What your next house will cost is irrelevant to the current value of your house.

BOTTOM BOTTOM LINE:

The question is never “How much do I want to get for my house” the question is “Do I want to sell my house?” If you DO want to sell, then you have to price it based on what people are willing to pay. If that number won’t work for you, then you probably should not be selling.

What if your home doesn’t appraise for the selling price?

NOTE: (5/7/09)  This post is from about a year ago.  As of 5/1/2009 there is a new “wrinkle” in the appraisal process which you should also read about.  It is the  Fannie Mae / Freddie Mac  Home Valuation Code of Conduct.  Read about it HERE.

This is a question that is coming up all too frequently these days. Here’s how it happens.

You and your Realtor agreed upon an initial list price when you first put your home on the market. Assuming you listened to your Realtor’s advice and priced it properly, it should sell within a reasonable amount of time. If it does, then the comparable listings or “comps” that an appraiser will use in determining the value of your house at the time of sale will likely be in line with the comps that the Realtor used when you listed.

The challenge comes when one of two things happen.

1. You added a “fudge factor” to the listed price so you’d feel better about negotiating. In other words, the “right” price should have been $100. You decided that this number is your bottom line so you insist on listing for let’s say, $110. Then you happen to luck out because the buyer fell in love with your house and your Realtor negotiated a selling price of $107. Great, right? Well- maybe, maybe not. When your buyer goes to get a mortgage, his lender will order an appraisal. The appraiser will look at recent comps and he might just come up with, oddly enough, $100 as the value. So your house is appraising at about 7% lower than what it sold for.
2. The second scenario happens when you home does NOT sell quickly. Let’s use our $100 house again. You list it at $104, which is much more reasonable and 9 months later you sell it for $102. The appraiser now comes in and looks at recent comps. In today’s market, “recent” may only extend back 60 days. In a depreciating market that we’re in, the house may now only appraise at, let’s say $96 which about 6% lower than what it sold for.

So — what happens then?

There are two possible problems.

1. The lender may not want to make the loan.
2. The buyer may not want to pay the price because he is being told that the house is not worth what he paid.

The lender’s decision as to whether to ignore the low appraisal will usually be based on the size of the down payment the buyer has compared to the value of the house. This is called “loan to value” or LTV ratio. The lender is primarily concerned with their ability to recoup their investment if the buyer defaults for any reason. If the buyer’s down payment sufficiently offsets the difference between purchase price and appraised value, the lender may be satisfied and still make the loan.

Even if that does happen, the buyer may take a hard stance and say that he is not willing to pay the price because it is over market value and doesn’t want to get stuck with a house that is not worth what he paid. If this is the case, you may have to renegotiate at this point in order to make the deal work. You can lower your asking price, offer to pay some or all of the closing costs, or make some other concession to the buyer, like giving a credit for new flooring or driveway or something else. Depending just how badly the buyer wants or needs the house, you may not have to make up the entire difference, just some of it.

The best way to avoid this happening is to price your house properly at the outset and to keep the price in line with market value if it doesn’t sell for a while. Your Realtor should be working with you throughout the length of your listing agreement to keep you apprised of changes in value. Listen to your Realtor.

Housing Data Flawed – Shame on the pundits!

If you’ve ever read anything else on my site, you will have seen me write time and again, that you cannot use the national media to make judgments about the housing market in your area. Real Estate markets are intensely local. Your town may be different than the next and it’s certainly different than a community in another part of the country.

S&P Index Committee Chairman David Blitzer admitted today that the data they use to talk about the huge decline in housing prices and the prediction of continued price drops is not really a good indicator of wide spread trends. He acknowledged that his organization’s overall and metro-market readings paint an incomplete picture.

Blitzer said that the S&P measures 20 markets nationally. The NAR (National Association of Realtors) measures 330 markets for their data. Mr. Blitzer acknowledged that measuring more markets might not be a bad thing to do.

So don’t fall for the gloom and doom of the national media. CNBC, FOXNEWS, MSNBC, and all the other broadcasters report news that will increase ratings – nothing more. It’s much more interesting to run a “teaser” at the top of the hour saying things like “Housing market continues to tumble” than it is to say “Objective real estate news – stay tuned”.

THIS LINK will give you the full article by Chris Plummer of Marketwatch.com

What exactly is a “short sale” and who benefits?

With today’s “mortgage crisis” you hear a lot of terms thrown around. Foreclosure, Bank-Owned Properties, Loan Defaults, Short Sale are just a few.

If a homeowner is faced with a situation where he cannot make his payments and does not want to be foreclosed upon, he can sometimes negotiate with the lender to allow a “short sale”. This can often be the best deal for the homeowner as opposed to having his property foreclosed on. What it means simply, is that the lender agrees to allow the homeowner to sell the property for less than the loan balance and forgive the rest of the debt.

The seller benefits because he can walk away without owing any money. The lender benefits because they can get a troubled loan off their books without having to own the property and sell it themselves. The buyer benefits because he can get “good deal.”

So what’s the catch?

The catch simply is that the buyer and seller have to be really, really patient. Although the bank has agreed to the concept, they always put in a contingency that they must approve the details of the sale. Most banks are as slow as molasses in processing approvals of this sort. We’re not talking weeks – we’re talking about months.

They have agreed that the sale can be less than the loan balance but in their heart of hearts they don’t want to do it. So if the purchase offer is less than the loan balance it will go into a process (black hole) awaiting approval of a number of unnamed parties whose job, apparently, is to dissuade the buyer from actually buying the house.

That, of course, is a bit cynical, but that’s how it can sometimes seem.

If this should come up, talk with your Realtor and explore all your options. If you need to move quickly this may not be the right path to go down.

How to execute a successful online home search.

Finding a home to buy is like anything else. You have to prioritize what’s important to you and eliminate those that don’t meet your requirements. I discuss this in more detail HERE.

The most common method today of looking for a home is to do a search online. There are many websites that give you this capability.

Where do you begin though in deciding what to put in your search parameters. Some of the criteria you want may not even be available as fields. For those you’ll have to do a basic search and read through the listings individually to find the ones that you want.

It’s all about compromise and finding something as close as you can.

There are three four basic components. Let’s start by looking at the first three.

1. Price
2. Location
3. Features

You have to list your wants and “gotta haves” in each of these three areas. For example:

• You cannot or will not pay more than, let’s say, $400,000.00
• You must be within 2 miles of an entrance to I-84
• You must have a flat lot, 2.5 bathrooms, hardwood floors and a dining room big enough for your furniture.

When you first do an online search, stick to all three components. As mentioned above, not all the things you want will be available as search options. You’ll have to pull what you can and go through them manually marking the ones you like. Save the search or print the results.

Then do 3 more searches.

1. Keep your location and features but come up $50,000 in price.

2. Put the price back down and look for places that are a little farther from the highway.

3. Then put the location back where you want it and open up the search relaxing the features you want.

Save or print the results of each search and label the results as to what the differences are.

Compare each group by looking through all the listings that you have.

This way you’ll have many more homes to choose from. Select the ones that come closest to your wants and needs. Call you Realtor and arrange to see those.

The fourth component is TIME. This comes into play primarily when you are not very flexible on the first three.

If you must have all of the other three components, the net result will be that there are significantly fewer homes returned in the online search results.

This does not mean, that you cannot find what you want. Unless you are very far removed from reality, you will likely find something that meets all your needs – eventually. The catch comes in if you have a firm time when you must move by. Perhaps you are renting and your lease is up at a certain point. Perhaps your home is sold already or perhaps you have to move because of a new job.

The more firmer your requirements, the longer it will take before your ideal home comes up in the search.

TIP: Database searching is only as valuable as the criteria you put in. If you don’t ask the right questions, you won’t get the right answers.

If you want to take a stab at online searching – click HERE.

When will the market come back?

I suspect that most Realtors are being asked this question daily – probably multiple times.

Every day and night – we are being bombarded with headlines like “Housing prices tumble”, “Housing market continues to decline”, “No end in sight for drop in home sales” “Foreclosures up”.

The net effect of this kind of sensational journalism is that people who need to make a move are waiting. The question is, what are they waiting for and when will it happen.

If you ask most of these folks, exactly what they are waiting for – the answer is often that they are waiting for housing prices to begin to climb as they did in the early part of this decade.

Well – guess what? That’s not likely going to happen any time in the foreseeable future. Here’s what is going to happen.

Right now, we are in a depreciating market. This basically means that while the number of buyers looking to buy homes is roughly the same as it was last year and the year before, the number of houses for sale is much higher than it was. This puts the buyers in a good position. They can pick and choose which houses to buy. This also means that they set the price. The homes that do sell are selling for less than would have sold for 18, 24 and 36 months ago.

At some point, the glut of inventory (the number of homes for sale) will start to drop a bit. This will happen because some folks will pull their homes off the market or they simply won’t put them on. Buyers will start to act a little more quickly as they see homes they were considering start to sell out from under them. This will in turn decrease the inventory a bit more. This cycle will keep going until eventually the market will “bottom out” which simply means that the prices will stop declining.

Home prices, at that point will probably remain stable for a while and they start to rise a bit. The thing is that even when they do start to rise, the odds that they will rise as they did a few years ago are extremely low. Housing prices will rise, but at a normal pace – most likely keeping in stride with the economy in general.

You must realize that the level of increase from a few years ago was artificial. Prices went up because everyone was buying/selling/buying. People were purchasing homes with the intent of staying in them only a year or so and then “flipping” to another house where they would do it again. I know people that moved 5 or 6 times in 3 or 4 years. A feeding frenzy was rampant. Houses were selling in a matter of days or even hours after being put on the market. Bidding wars ensued.

None of this has any precedent. It was a self-perpetuating house of cards that had to tumble at some point. It did.

Now, at some point, the market will hit bottom, and begin to start a new cycle.

As to when it happens, some people think it’s very near. Anecdotal evidence suggests that houses that are priced properly are selling in a few weeks instead of a few months. Hard data isn’t available yet to say what 2008 is actually going to be like.

Some think it’s going to be a while.

So – when will the market come back? It will probably never come back to where it was 24 months ago, but it will come back to a normal cycle – soon (we hope).

If you have a need to move, talk to your Realtor and look at the market conditions in your own town. In spite of the gloom and doom from the national media, every market is different. If you have a need to move, you should move.